China-Japan Oil Deal

BOSTON—China’s decision to share a disputed gas field may mark a significant breakthrough with Japan, but analysts caution that major issues remain unsettled between the two Asian powers.

On June 18, China’s Foreign Ministry confirmed reports that it had agreed on joint development of the East China Sea gas field that has been at the center of border quarrels with Japan for the past four years.

Under the agreement, Japan will participate in exploiting the offshore Chunxiao field, which Japan calls Shirakaba, and will jointly explore nearby areas, the ministry said. While Japan will make “financial contributions” to the gas field project, “profits will be distributed on favorable terms to China,” said the Tokyo daily Yomiuri Shimbun.

The two countries have been at odds over the undersea resources since China National Offshore Oil Corp. (CNOOC) started drilling in 2004 near waters claimed by Japan.

Tokyo charged that CNOOC was tapping into gas on Japan’s side of a median line in an area known as the Xihu Trench. China claims a wider economic zone, based on the extent of its continental shelf.

Although the disputed resources are believed to be relatively small, the conflict added to a long list of tensions stemming both from current security issues and historical recognition of Japan’s role in World War II.

The reserves at issue are the equivalent of 92 million barrels of oil, or only about three weeks’ worth of Japan’s energy demand, the Reuters news agency noted. The expected annual gas production of up to 2.5 billion cubic meters would be only about 3 percent of China’s output last year.

More demand

But growing energy demand has driven China to pursue greater development efforts than ever before, in some cases despite the political consequences.

Although China and Japan normalized relations in 1972, their maritime border has never been settled. After a small protest in front of the Japanese Embassy in Beijing on June 18, Chinese Vice Foreign Minister Wu Dawei called a press conference to defend the deal, which he called “transitional.”

“The agreement does not harm China’s sovereign and jurisdictional rights in the East China Sea,” Wu said.

The deal came less than six weeks after President Hu Jintao visited Japan in early May, becoming the first Chinese leader to do so in a decade.

Relations have been gradually warming with Japanese Prime Minister Yasuo Fukuda after a chill under his predecessor Junichiro Koizumi, but sensitivities still run high.

China thanked Japan for its help after the May 12 earthquake in Sichuan, but it balked at an offer to send military planes and personnel.

On June 24, China welcomed the goodwill visit of the Japanese navy destroyer Sazanami to the southern port of Zhanjiang, the first such call since the war.

But two weeks earlier, China protested a collision between a Japanese Coast Guard vessel and a Taiwanese fishing boat in an area that China claims.

Experts see the gas field agreement as political progress between the two countries, but they caution that it may still be subject to setbacks.

Issues remain

“I wouldn’t see it as permanent progress,” said Adam Segal, senior fellow for China studies at the Council on Foreign Relations in New York. "There are still such larger structural issues, the biggest one being that we just haven’t had China and Japan be strong at the same time in the modern era.”

Segal said the economic benefit from the agreement is likely to be “pretty minor” due to the small size of the field. China was motivated to strike some preliminary deal to signify improving relations before the Olympic Games in August, he said, but the principles of settling the bilateral boundary and other key issues remain unresolved.

“Both sides are suspicious of each other’s militaries,” said Segal. “They’re suspicious of their larger strategic interests. Right now, economic relations are good, but I do think that it would not be surprising if some unprepared for and unexpected incident could make relations go south much more quickly than either side would want.”

Philip Andrews-Speed, a China energy expert at University of Dundee in Edinburgh, Scotland, said the political step could be “highly significant” in the long term because China and Japan have shown so much resistance to cooperating in the East China Sea.

But he added that “a lot more work needs to be done to define the nature of cooperation in this joint development zone.”

Many more steps are needed if the two countries are to follow the pattern for developing disputed areas under the United Nations Law of the Sea convention, Andrews-Speed said.

These include a treaty for setting up a joint development zone, establishing a joint development authority and defining flows of investment, oil and taxes. None of those steps appear to have started, he said.

Andrews-Speed agreed that the progress is still tenuous, in part because historic resentments have been fueled in the past by the Chinese government.

“We’ve seen this in recent years before in China and in Japan. If either one side does something bad or the two countries try to cooperate with each other, then people get out on the street,” Andrews-Speed said.

“Sadly, you can only blame the government, because they’re the ones who have kept up this rhetoric for the past 50 years."

Although policy is changing, Beijing has done relatively little over a short period to prepare the public for a turnaround in relations with Japan, said Andrews-Speed.

“You could say that it’s done exactly the reverse by saying no, no, no, all the way, until one day it suddenly says yes. So, I think the Chinese government has a lot of explaining to do to their people,” he said.